2. ACTUARIAL SCIENCE LTAM QUESTION

2. (9 points) A 3-year endowment insurance is issued to (60). The policy has the following details: (i) Face amount is 250,000 (ii) Mortality follows the LTAM Table (iii) Pie-contract expenses are 500 (iv) Commissions are 8% of each premium (v) The hurdle rate is 15% (vi) Policymam 01/ = 0,1V = 75,000, 2V = 160,000 (vi) Annual premium is 80.000 (vii) Earned interest rates for the policy are 8% , 10%and12% in the rst, second and third years. respectively. (a) (4 points] Calculate the expected prot vector for the policy. (b) (3 points) Calculate the prot signature and NPV for the policy. (c) (2 points) Suppose that the reserve is raised for the rst year end reserve. Comment on the effect that this will have on the prot vector and the NPV